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Title: Inequality and Aggregate Savings in the Neoclassical Growth Model

Author(s): Reto Foellmi

Publication Date: November 2009

Keyword(s): concave consumption function, growth, income distribution and Marginal propensity to consume

Programme Area(s): Public Economics

Abstract: Within the context of the neoclassical growth model I investigate the implications of (initial) endowment inequality when the rich have a higher marginal savings rate than the poor. More unequal societies grow faster in the transition process, and therefore exhibit a higher speed of convergence. Furthermore, there is divergence in consumption and lifetime wealth if the rich exhibit a higher intertemporal elasticity of substitution. Unlike the Solow-Stiglitz model, the steady state is always unique although the consumption function is concave.

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Bibliographic Reference

Foellmi, R. 2009. 'Inequality and Aggregate Savings in the Neoclassical Growth Model'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7569